Gold or Gas? I’ve Made My Choice

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Investment Opportunity

EDITOR’S NOTE: Exciting news! We’re making some changes to your daily Profit Watch service. I’m going to bring you a broader array of analysis and ideas to help your trading and investing.

I also need some help to carry the workload. Writing every day is great fun. But my premium trading service Catalyst Trader is now ‘officially’ live…and I’ve got dozens of stocks to track and trade.

Profit Watch will merge with the newsletter from where it came…The Daily Reckoning Australia! You may not know I was the chief editor of this before I set up Profit Watch. Soon you’ll receive your daily note under this banner. But don’t stress.

You’ll still hear from me at least twice a week. The benefit is now you’ll hear from my former desk buddy Shae Russell too — Australia’s best gold analyst, in my opinion.

You don’t have to do anything. We have your email and, I hope, your attention.

We’re still here to brighten your day, sharpen your mind and challenge your preconceived notions…and maybe even give you a laugh every now and again. I’ll keep you posted on the timeframe for this slight shift. Thanks for your continued support!

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Gas-led recovery

Today we have a classic case of where to put attention and resources.

PM Scott Morrison has exploded a bomb on us. You’ve no doubt heard about it already.

We’re going all in on a gas-led recovery!

Maybe.

This is a messy situation with a lot of vested interests.

The Australian Financial Review reports that pipeline companies and gas producers support the PM.

Well they would, wouldn’t they?

Others aren’t so sure…

What to do?

Here’s my idea…

Sidestep the lot of it.

Yep. Just don’t go there.

I’m not saying this is the right strategy. Hindsight can only reveal that.

But I’m putting all this in the too hard basket.

You might recall I had futurist Tony Seba on a while back. His view is that solar is coming to wipe out the fossil fuel-based energy system within three years.

I agree with him.

But the existing system isn’t just going to pack up and go away. There are the five stages of grief to go through.

There’ll be counter rallies and periods of resurgence.

By all means, trade it if you can. But I’m not going to invest long term in it.

Australia’s politicians might be a little…how should we say…‘favourable’ to existing players with deep pockets.

But economics will rule over time. Solar is the cheapest and getting cheaper.

It’s based on abundance and fossil fuels are based on scarcity.

And battery tech is coming to make the need for ‘firming’ back up redundant.

I urge you to listen to Tony Seba. He also mentioned that the outlook for traditional utilities is pretty dire.

Have you seen a chart of AGL Energy and Origin Energy since we had our conversation?

Hopefully Profit Watch saved you a buck there.

So if we’re sidestepping gas, where to look now?

I ran a scan of stocks hitting new highs in the last week.

One sector stood out — again.

Gold is strong

Gold stocks.

They had their little sell-off the other month. But the buyers are stepping in again it seems.

Again — gold is strong. The margins are still there. That means a producing gold stock has a continual flow of earnings happening.

Buyers will step in while this remains the case, depending on how much they’re prepared to pay up for it.

But I always want more with a commodity stock. Leveraging the price is a little too one dimensional for me.

I like to ‘derisk’ the trade with some other angles. I mentioned one yesterday — potential mergers or acquisitions.

Another is exploration campaigns.

Producing gold stocks are almost always investing in future exploration. They have a wasting asset base so they have no choice.

It’s one reason Warren Buffett famously avoided them for half a century or something.

They have to continually reinvest their earnings to stay in business.

But the gold price is so high right now many producers can invest back into future production and bank a good profit.

That makes the gold sector a fruitful one to explore.

And there are a lot of gold stocks on the ASX.

Investors are always happy to back gold. That’s why so much exploration money pours into gold every year.

But ploughing through all the different projects, geology, timeframes and management teams is a hefty job.

It’s much easer to pass the buck to someone who does it as a job.

That’s why I refer you on to my colleague Shae Russell all the time.

If you want to invest in the gold sector, jump on board with Shae while gold glitters as brightly as it does now.

It won’t last forever…just ask anyone in the gas business how times can change. They were booming in 2012.

Now they need the government to prop up the industry.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

PS: Profit Watch is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.